When the other shoe drops? Duck!

Dubai default threat rattles world stocks

The Dubai government announced that it would revamp the Dubai World group and wanted its lenders to extend its maturing debt until at least May 2010.

Dubai added that it had raised five billion dollars in a new bonds issue aimed at helping meet its debt obligations.

So what happens when the other shoe drops? I along with many others in this country, have been wondering for over a year now, as to where the next seismic event in the global economy would occur. Call it as the old axiom says "waiting for the other shoe to drop."

But what happens when that shoe comes flying out of the back rows of the middle east and it is headed right for America's head. Call it a reminiscent analogy of George Bush ducking the thrown shoe during his last visit to Iraq.

This news is not good IMO and it comes in the midst of one of America's traditional four day holidays. Which tells me that it was a planned move by those in Dubai. They and their bankers will have at least four days now, to get their duck in a row, before the American markets can react and even begin to attempt to assess and react to the damage done here by this news.

Dubai has been one of the fast lane players on the world scene for at least the last fifteen years. Seemingly like their neighbors, swimming in oil money and going through that money faster than whale oil through a hurricane lamp.

There has been a boat load of development in Dubai during that period, particularly as it concerns commercial development and real estate. Dubai now has the world's tallest building, not to mention the largest man made series of resort islands, all of which were raised from either barren desert or the depths of the sea.

It only takes money, or so it seems and those in Dubai have not only spent their wealth at an alarming rate, but they have also mortgaged a great deal of their extravagance to the hilt it would appear.

And now the bills are coming due and with the fall of global oil prices? It would appear that those in Dubai are becoming familiar with that old adage about counting your chickens before they hatch. Not unlike California as an example, states and nations cannot charge blindly forth into never ending debt while abusing their ability to repay it, on what they "project" as their income based upon current resources, taxes and trends.

It simply doesn't work that way and California has already seen just how dire that reality can become, once those projected revenues never materialize. Which is precisely what is happening in Dubai and causing the danger now to world markets.

There was a time when bankers globally looked for collateral and they looked at credit history and their potential customer's ability to repay. All that went out the window once the Clinton administration abandoned the "Glass Stegal Act" and allowed unregulated banking and trading. And the trend was picked up in global markets and the bundlers took off like pigs to the trough.

And here we are.

A default by Dubai or even the threat of a default could be that shoe from the back of the room for America. it could be the knockout punch that we have all feared. A round house blow that sends this country reeling and tumbling to the mat.

There are many economist (outside the mainstream bean counters in government) who have said for the past year, that the next crisis to strike the global economy would be the crash of commercial real estate. I happen to believe that it has already begun here in America. I also happen to believe that based on this news of Dubai's troubles? We may be at the point of watching the water draw away from the beach, right before the Tsunami that can kill our economy comes crashing in.

Of course....I could be wrong and I sincerely hope that I am. Arguments in opposition are welcome.